Xerox 2015 Annual Report Download - page 97

For purposes of determining the expected return on plan assets, we utilize a market-related value approach in
determining the value of the pension plan assets, rather than a fair market value approach. The primary difference
between the two methods relates to systematic recognition of changes in fair value over time (generally two years)
versus immediate recognition of changes in fair value. Our expected rate of return on plan assets is applied to the
market-related asset value to determine the amount of the expected return on plan assets to be used in the
determination of the net periodic pension cost. The market-related value approach reduces the volatility in net
periodic pension cost that would result from using the fair market value approach.
The discount rate is used to present value our future anticipated benefit obligations. The discount rate reflects the
current rate at which benefit liabilities could be effectively settled considering the timing of expected payments for
plan participants. In estimating our discount rate, we consider rates of return on high-quality fixed-income
investments adjusted to eliminate the effects of call provisions, as well as the expected timing of pension and other
benefit payments.
Each year, the difference between the actual return on plan assets and the expected return on plan assets, as well
as increases or decreases in the benefit obligation as a result of changes in the discount rate and other actuarial
assumptions, are added to or subtracted from any cumulative actuarial gain or loss from prior years. This amount is
the net actuarial gain or loss recognized in Accumulated other comprehensive loss. We amortize net actuarial gains
and losses as a component of net pension cost for a year if, as of the beginning of the year, that net gain or loss
(excluding asset gains or losses that have not been recognized in market-related value) exceeds 10% of the greater
of the projected benefit obligation or the market-related value of plan assets (the "corridor" method). This
determination is made on a plan-by-plan basis. If amortization is required for a particular plan, we amortize the
applicable net gain or loss in excess of the 10% threshold on a straight-line basis in net periodic pension cost over
the remaining service period of the employees participating in that pension plan. In plans where substantially all
participants are inactive, the amortization period for the excess is the average remaining life expectancy of the plan
participants.
Our primary domestic plans allow participants the option of settling their vested benefits through the receipt of a
lump-sum payment. The participant's vested benefit is considered fully settled upon payment of the lump-sum. We
have elected to apply settlement accounting and therefore we recognize the losses associated with settlements in
this plan immediately upon the settlement of the vested benefits. Settlement accounting requires us to recognize a
pro rata portion of the aggregate unamortized net actuarial losses upon settlement. The pro rata factor is computed
as the percentage reduction in the projected benefit obligation due to the settlement of the participant's vested
benefit.
Refer to Note 16 - Employee Benefit Plans for further information regarding our Pension and Post-Retirement Benefit
Obligations.
Foreign Currency Translation and Re-measurement
The functional currency for most foreign operations is the local currency. Net assets are translated at current rates of
exchange and income, expense and cash flow items are translated at average exchange rates for the applicable
period. The translation adjustments are recorded in Accumulated other comprehensive loss.
The U.S. Dollar is used as the functional currency for certain foreign subsidiaries that conduct their business in U.S.
Dollars. A combination of current and historical exchange rates is used in re-measuring the local currency
transactions of these subsidiaries and the resulting exchange adjustments are recorded in Currency (gains) and
losses within Other expenses, net together with other foreign currency remeasurments.
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